A matter of (anti)trust
The status of recent FTC cases and why they should matter to you
This article is based on a presentation given by Jennifer Ancona Semko, a partner with Baker & McKenzie LLP, at the
2013 FSBPT Annual Meeting.
Based on recent rulings by the Supreme Court and Fourth Circuit, state regulatory boards may
run the risk of violating federal antitrust statutes. There are two cases critical to physical
therapist boards - the Phoebe Putney Medical Center and the North Carolina State Dental
Board.
In 2009, Phoebe Putney Medical Center, an Albany, Georgia hospital owned by a non-profit
corporation and established by a hospital authority decided to acquire the only other hospital in
town. The Federal Trade Commission (FTC) was not happy.
In the second case, the licensing board in North Carolina sent cease and desist orders to mall
kiosks and suppliers and everyone but dentists in an attempt to stop non-dentists from
performing teeth whitening. Once again, the FTC did not appreciate it.
In both cases, the common defense was state action immunity. State regulatory boards are
authorized by their respective legislatures to fulfill their obligations to protect the public and
while doing so, may run the risk of violating federal antitrust statutes. State action doctrine
defines a safety zone in which boards may operate free from antitrust liability.
The cases have potential far-reaching consequences because the Supreme Court and Fourth
Circuit redefined the scope of that safety zone with an arguably smaller buffer for regulatory
boards.
One of the key issues was whether the boards are state actors or a private entity. In the North
Carolina case, the court ruled the board was a private entity.
Antitrust laws
Antitrust laws are intended to promote competition and protect free competition from
interference by private forces acting in their own self-interest. The belief is that antitrust laws
protect consumers from higher prices, reduced output, lower product or service quality,
decreased innovation or diminished product improvement. The premise is that free and open
© Federation of State Boards of Physical Therapy
Spring 2014 Forum
competition results in best products and services.
The Sherman Act outlaws agreements in restraint of trade and actions to unlawfully obtain,
extend or maintain a monopoly but it does not outlaw having a monopoly if it was achieved
lawfully. Other antitrust acts are the Clayton Act and the Federal Trade Commission Act.
Violation of these acts can create criminal and civil liability.
You may be guilty of violation of the antitrust act if:
• You make an agreement with your competitors to fix prices
• You make an agreement to allocate sales by customer type or territory
• You refuse to do business with Acme unless it stops doing business with Bates Co.
(secondary boycotts)
• You engage in tying: I will sell you A, but only if you also buy B
• You engage in other anti-competitive activity that causes consumer harm
Federal Trade Commission
The Federal Trade Commission is a U.S. government agency established in 1914 with a principal
mission of promotion of consumer protection and prevention of anti-competitive business
practices. It is made up of five commissioners nominated by the President and confirmed by the
Senate. It enforces antitrust laws, reviews proposed mergers and investigates business
practices.
The State Action Doctrine was originally established by the Supreme Court in 1943 and
elaborated upon in subsequent cases.
• State actions are not subject to federal antitrust laws
• Sub-state government entities are also immune, so long as they are acting pursuant to a
clearly articulated policy to displace competition
• Private entities may be protected if, in addition, they are “actively supervised” by the
state
Phoebe Putney
The Hospital Authority of Albany-Dougherty County was created by the state to operate and
maintain healthcare facilities. It owns Phoebe Putney Memorial Hospital, one of two hospitals in
county. The authority decided to purchase the second hospital in the county to turn it into a
women’s/children’s hospital and the Federal Trade Commission filed a complaint alleging the
transaction will violate the FTC Act and Clayton Act as it’s a merger to monopoly.
The Hospital Authority asserted a state action defense, arguing that the state law authorized it
to acquire the hospital and shielded it from antitrust liability. The District Court and the Eleventh
Circuit agreed, concluding that by authorizing acquisitions by the hospital authorities, Georgia
had clearly articulated a policy to displace competition. They applied the Supreme Court’s
“Town of Hallie” foreseeability test (it was foreseeable you might act in an anti-competitive
way).
The FTC took the case to the Supreme Court, which ruled against Phoebe Putney in February
© Federation of State Boards of Physical Therapy
Spring 2014 Forum
2013. It effectively overruled the foreseeability test and significantly narrowed the scope of
state action protection. It decided to apply a more stringent test to determine whether the
displacement of competition was the inherent, logical or ordinary result of the exercise of
authority delegated by the state legislature. The Supreme Court emphasized that “state action
immunity” is disfavored.
North Carolina Dental Board
The North Carolina State Dental Board reviewed its dental practice act and concluded the act
permitted only dentists to whiten teeth. The board sent cease-and-desist letters to non-dentists
and their suppliers/landlords. The teeth-whitening industry complained and the FTC opened an
investigation in 2008. In June 2010 the FTC concluded that the North Carolina Board’s actions
were anticompetitive and brought an administrative complaint.
The FTC lawsuit alleges that the North Carolina Board violated antitrust laws that prohibit unfair
competition.
The North Carolina Board moved to dismiss, arguing that its actions are exempt from federal
antitrust laws as it is authorized by the state and protected by state-action immunity. The FTC
denied the board’s motion to dismiss in February 2011. In July 2011, it was ruled that the North
Carolina Board actions violated the FTC Act.
Ruling appealed
Is the North Carolina board a private actor, or is it entitled to immunity as a state entity?
If the North Carolina Board is not immune, were its actions anti-competitive?
The FTC said the North Carolina Board is a private actor and must therefore meet the highest
standard (clear articulation and active supervision), as the board is a regulatory body that is
controlled by participants (dentists) in the very industry it purports to regulate (basically a fox
guarding the henhouse theory).
The FTC Commission found no active supervision and said there was not sufficient involvement
by any official state entities to supervise and review the board’s actions. It added that the
Board’s capacity to act and the state’s general oversight are not enough.
The FTC Commission ruling appealed to Fourth Circuit and the FSBPT joined other
regulatory/professional organization in submitting amicus curiae briefs in support of the North
Carolina Board. The argument was that the FTC decision was erroneous as a matter of law and
ill-advised as a matter of policy because the fundamental purpose of state regulatory boards is
public protection. Furthermore, the states vest boards with mandates to protect against
unlicensed practitioners, ensure minimum standards and regulate professional conduct.
It was argued that the FTC applied the wrong test for determining whether the North Carolina
Board was a state actor. The FTC improperly looked behind the actions of the North Carolina
legislature to determine whether the means by which the state set up the North Carolina Board
© Federation of State Boards of Physical Therapy
Spring 2014 Forum
was sufficient and whether North Carolina’s Board’s actions were “state action enough.” The
FTC focused on who was on the board and their potential private interests. It was pointed out
that the standard has been rejected by the Supreme Court and that the FTC improperly required
the North Carolina Board to show both clear articulation and active supervision.
It was also argued that requiring active supervision of state boards would negate the agencies’
efficiency benefits as states create agencies because they are often better equipped to deal with
unforeseeable issues or issues outside the competence of the legislature or judiciary. Requiring
express authorization for every agency action would diminish if not destroy an agency’s
usefulness. Also, states recognize that experts are often better equipped to regulate; it creates
an unnecessary layer of non-expert review.
It was further argued that the threat of antitrust liability could paralyze boards, deter
participation and chill decision making.
The court ruling
In May 2013, the Fourth Circuit ruled in favor of the FTC citing dicta from the Phoebe Putney
decision to justify its narrow reading. Its emphasis was on the Board being composed of a
“decisive coalition” of participants in the regulated market chosen by and accountable to fellow
market participants. One concurring judge noted that had the board members been appointed
by the governor, it would be a state entity and the active supervision requirement would not
apply.
Having concluded that the board was a private actor, the court concluded that active
supervision was not present as the state did not oversee the cease-and-desist order. It said that
generic oversight “does not substitute for the required review and approval of the particular
anti-competitive acts challenged by the FTC.” There was, therefore, no need to address the
“clear articulation” prong.
The North Carolina Board is petitioning for writ of certiorari (a writ by which a superior court can
call up for review the record of a proceeding in an inferior court) with some amicus support.
This matters to you
Why?
•
•
•
•
The broader issue of state action is relevant to all regulatory boards
Many boards include practitioner members
The amount of interface with the state may vary
FTC strongly disfavors state action defense and FTC seeks a high bar for active
supervision
Potential implications
This and other FTC cases reflect its mission to narrow the scope of state action immunity. The
FTC believes the state is not involved enough in overseeing the North Carolina Dental Board,
particularly since some board members were also dentists, even though the dental board’s very
purpose was to regulate dentists on behalf of the state. According to the FTC, a board made up
© Federation of State Boards of Physical Therapy
Spring 2014 Forum
of practitioners may need significant and ongoing state involvement to qualify for immunity. It
also appears that there is an increased threat of antitrust liability for regulatory actions.
Points to ponder
•
•
•
How clear is your board’s enabling statute?
How are board members selected?
Is there active supervision by your state?
What’s next?
These decisions likely do not foreshadow a program of review of licensing board activities, but
complaints brought to the FTC’s attention will get a receptive audience. The FTC has a long-held
position against state action immunity. These cases may encourage the FTC to push that
position even further and to be on the lookout for another case.
Jennifer Ancona Semko, Partner at Baker & McKenzie LLP
Jennifer Ancona Semko is a partner in the Washington, D.C. office of the global law firm Baker & McKenzie,
which has 70 offices in 43 countries around the globe. Ms. Semko focuses her practice on complex commercial
litigation, helping domestic and international companies resolve disputes arising from their business activities in
the United States and abroad. She also advises test developers on legal strategic issues and is a frequent
speaker on topics related to exam security and the rights and responsibilities of licensing and certification exam
programs. Ms. Semko received her law degree, magna cum laude, from Tulane Law School and is a former law
clerk to the Chief Justice of the Louisiana Supreme Court. She received her B.S.F.S., cum laude, from Georgetown University. In
2013 she was named a “Washington D.C. Rising Star” by Super Lawyers.
© Federation of State Boards of Physical Therapy
Spring 2014 Forum